Question 1: Special order

Sales volume in units	80
Revenue	$8,000
Variable costs	$1,600
Contribution margin	$6,400
Fixed costs	$1,300
Profit	$5,100

Special order: A client wants to buy 30 units at a discounted price of $30 per unit. This is a one-time deal (i.e., a short-term decision). You have enough spare capacity to fulfill this special order without cutting back on your regular sales. a) Use the gross approach to decide whether you should take the special order:

	status quo (no special order)	total amounts after adding the special order
Revenue	$8,000
Variable costs	$1,600
Contribution margin	$6,400
Fixed costs	$1,300
Profit	$5,100

Should you take the special order? Why?

YES -- the profit is positive with the special orderNO -- the low price for the special order reduces the contribution margin YES -- the profit is higher with the special order

b) Use the incremental approach to decide whether you should take the special order.

	how much each amount changes after adding the special order
Incremental revenue
Incremental variable costs
Incremental contribution margin
Incremental fixed costs
Incremental profit

Should you take the special order? Why?

YES -- the incremental profit is positive

NO -- the incremental profit is lower than the original profit

YES -- the total profit is positive

Question 1: Special order 80 Sales volume in units Revenue $8,000 Variable costs $1,600 Contribution margin $6,400 Fixed costs $1,300 Profit $5,100 Special order: A client wants to buy 30 units at a discounted price of $30 per unit. This is a one-time deal (i.e., a short-term decision). You have enough spare capacity to fulfill this special order without cutting back on your regular sales. a) Use the gross approach to decide whether you should take the special order: status quo (no special total amounts after adding order) the special order Revenue $8,000 Variable costs $1,600 Contribution margin $6,400 Fixed costs $1,300 Profit $5,100 Should you take the special order? Why? YES -- the profit is positive with the special order O NO -- the low price for the special order reduces the contribution margin YES -- the profit is higher with the special order b) Use the incremental approach to decide whether you should take the special order. how much each amount changes after adding the special order Incremental revenue Incremental variable costs Incremental contribution margin Incremental fixed costs Incremental profit Should you take the special order? Why? YES -- the incremental profit is positive O NO -- the incremental profit is lower than the original profit YES -- the total profit is positive